Asked by joban preet Thind on Jun 30, 2024
Verified
Suppose the income elasticity of demand for toys is −0.5. This means that
A) a 12 percent increase in income will decrease the purchase of toys by 6 percent.
B) a 12 percent increase in income will decrease the purchase of toys by 24 percent.
C) a 12 percent increase in income will increase the purchase of toys by 6 percent.
D) toys are a normal good.
Income Elasticity of Demand
A measure of how much the quantity demanded of a good changes in response to a change in consumers' income.
Normal Good
A type of good for which demand increases as the income of consumers increases, showing a positive relationship between income and demand.
- Analyze how income changes affect demand for various goods based on the income elasticity of demand.
Verified Answer
ZK
Zybrea KnightJul 07, 2024
Final Answer :
A
Explanation :
The income elasticity of demand formula is percentage change in quantity demanded divided by percentage change in income. A negative elasticity (-0.5) indicates that toys are an inferior good, meaning as income increases, demand decreases. A 12% increase in income leads to a 6% decrease in demand for toys (12% * -0.5 = -6%).
Learning Objectives
- Analyze how income changes affect demand for various goods based on the income elasticity of demand.